Tuesday, June 28, 2016

Brexit and the revolt against globalism

Everywhere
one turns there is evidence of widespread rage and frustration. The peoples of Europe and the Americas
in particular are aggrieved at their political lot and are becoming
increasingly angry. What
was once a simmering resentment has become a boiling cauldron of discontent.

The
latest token of this growing anger is the outcome of Britain’s vote to leave
the EU. The majority of
British voters have decided they’ve had enough of austerity and have expressed
their unhappiness in no uncertain terms, much to the consternation of global
financial markets. This in turn has
inspired other European countries to pursue independence from the Union.

The powerful tailwinds of global deflation
are reflected in the following graph of the Europe ETF. While European equity prices have suffered
the effects of investors’ uncertainty over the future of the EU, gold prices
and other financial safe havens have benefited – and should continue – to
benefit from it.

In
the U.S., a growing resentment of internationalist policies has spawned the
surprising successful Donald Trump presidential campaign. Even Texas has rekindled its
long-time passion for self-determination.

The
spirit of the times is undeniably one of revolt with independence and freedom
from excessive government the rallying cry. The contrast between today’s world
spirit and that of just 10-20 years ago is indeed stark. At that time the prevailing spirit was
one of unity, cooperation and enthusiasm for the burgeoning global
economy. Today it’s quite
the opposite: multiplied millions have had enough of the globalism experiment
and are inclined to turn inward rather than outward.

What
brought about this stunning change of opinion and how did it happen? Students of history will no doubt
recognize the undeniable cyclical nature of human affairs and will readily
discern the answer. The
long-term cycles which govern the economy and mass human emotion are the
primary catalysts in the worldwide populist uprising.

Bureaucrats
and elected leaders the world over are puzzled by the growing resentment of the
taxpayers and their repudiation of globalism. As history repeatedly shows, however,
government tends to be tone deaf to the will of the people at pivotal points in
world affairs. This time is
proving to be no exception. The
latest news headlines demanding a “re-do” of the Brexit vote underscore the
rejection of majority will on the part of government. Yet government still wonders why their
subjects are in a rebellious mood. As
many commentators have recently observed, why even bother holding elections if
the majority will is only going to be ignored? Why not dispense with the illusion of
the democratic process and openly declare government by decree?

The
global growth of the rebellious spirit can be traced to the 120-year Grand
Super Cycle made famous by Samuel J. Kress. According to Kress, at the end
of each 120-year cycle bottom there is a revolutionary change that accompanies
the transition into a new Grand Super Cycle. Not for naught is it sometimes called the
Revolutionary Cycle. The previous
120-year bottom in the late 1890s witnessed the efflorescence of the Industrial
Revolution in the U.S.; the prior bottom in 1774 saw the American Revolution
for independence from England.

Before
his passing, Mr. Kress prophesied that the latest 120-year cycle bottom in 2014
would see the establishment of socialist government in the U.S. and the demand
for more democracy in other countries. His
prediction is starting to be justified as evidenced by the fact that other
countries across the globe are fervently trying to throw off the shackles of
decades of socialist policies; meanwhile in the U.S. government’s role in
everyday affairs is expanding apace.

Each
phase of the Grand Super Cycle, ascending and descending, has its own peculiar
characteristics. The rising phase of the
cycle is characterized by economic expansion, optimism, goodwill and trust of
government. The descending phase, is
marked by economic contraction, pessimism, distrust of institutions and
cynicism toward government. Based on the
foregoing descriptions, it’s easy to see which side of the cycle we’ve been on
in recent years.

A
common question concerning the long-term cycle is, “If the 120-year cycle
bottom in 2014, why are we still seeing the manifest tokens of a declining
cycle?” The answer is that
the residual downside force from such a huge cycle will naturally take time to
dissipate. Just as a
speeding freight train can take miles to reach a complete stop and the
tailwinds from a hurricane can linger for hours after the storm passes, the
destructive effects of a bottoming cycle can continue for weeks, months, or
even years after the cycle has bottomed (depending on the cycle’s magnitude).
According to Kress, the cycles have a standard deviation (plus-or-minus) of 1-2
percent. A 2 percent
standard deviation of the latest 120-year cycle bottom equates to 2.4 years
from the cycles nominal bottom of September/October 2014. If there is any validity to the
long-term Kress cycle, that would mean we likely wouldn’t witness a lifting of
the deleterious effects of the cycle until sometime next year.

In
the mean time we should expect to see in the coming months a crescendo of the
rebellious spirit as the momentum behind the anti-globalist movement reaches
explosive proportions. Although
only time will provide the final verdict, it can be conjectured that what we’re
now witnessing is the final “blow-off” phase of the revolutionary mindset which
began in the wake of the 2008 credit crisis. As is true of most momentum blow-offs,
the final move just prior to exhaustion of the trend tends to make a
spectacular showing.

When
all is said and done, and the dust has cleared, what can we expect as the final
outcome of the Great Global Rebellion? The
future is anyone’s guess and God only knows what the ultimate result will
be. Using history as a
template we can, however, make a reasonable conjecture and review some possible
scenarios. One such
possibility is that the U.S. ultimately ends up in the throes of greater
government control than ever, thus continuing the trajectory of the last
several decades of federal creep while fulfilling Kress’s prediction.

Another
potential outcome is that the peoples of the world continue in their determined
effort to throw off the shackles of technocratic rule and move toward a path of
self-determination. If both
scenarios are realized, as per Kress, this would represent a stunning reversal
of the prevailing global paradigm of the last 120 years.

Once
the tailwinds of the 120-year cycle bottom have completely abated the markets
should be in a good position to commence a synchronized (and much needed)
global re-inflation phase as the newly formed Grand Super Cycle becomes
established. When it finally happens it
will be a most welcome change from the rebellious spirit that has characterized
the last several years.

2 comments:

Hello Clif, what I do not understand is that we are at the bottom of the 120 year Kress cycle but the stock market is still high in the sky. The stocks should actually be down in hell. How do you comment on this?

Hi Tobias,The need for synchronization among the global markets was made in reference to the bourses of Europe, as well as to China and Japan. The stock markets of Europe, and of some other major countries around the world, hit multi-year lows in 2016. It's mainly the European markets which require re-synchronization with the U.S. financial market, which is in fact "soaring" as you said.

The "tailwinds" mentioned in the article were in reference to the undercurrent of deflation which was/is still very much apparent in many countries outside the U.S. this year. Once these deflationary tailwinds have completely dissipated I expect the global markets to synch up with the U.S. as a new long-term re-inflation begins.